The Fuse
What are futures doing?
Equity futures are ripping higher this morning as an apparent agreement has been reached in the Iran War. It is all but a foregone conclusion and the stock market likes the news. The SPX 500 is poised to open up above 7.500 for the first time in about a month.
News
Seeing bullish action overseas, the STOXX up 1.2% led by strong gains in France and Germany. FTSE rose up a solid .8%, gold is ripping higher again by nearly 3%, silver is up and crude oil back down about 4.5%. The US dollar index fell .2%. Yields are also coming in, German bunds off 4 bps but US 10 yr treasuries off 5bps, and in Asia stocks were higher. Japan up a strong 5%, Shanghai gained 1.6% an Hong Kong up .6%.
Volatility
As expected the VIX is taking a tumble today and may get towards 15% later in the week. This being a short trading week (Friday markets are closed) we could see a rush to sell volatility before options expiration on Thursday.
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Interest Rates
Yields are coming down across the yield curve as the war premium is removed and potential inflation worries on higher oil subside. Long end of the curve is getting the most benefit as bond traders start buying, 2/10 spread is widening again which is bullish for markets, we saw strong moves in high yield last week that should continue with the higher equity markets, and fed funds are not moving much, the next meeting starts Tuesday.
Earnings
Slow week of earnings with on a few bigger names like Carmax, Accenture, Kroger, Jabil, Dave/Busters and some small issues.
Events
Of course the big event on Friday was the SpaceX IPO and the hype was building. Perhaps many believe this lived up to the hype, but frankly this is simply another new issue that is well overpriced and overexposed. No doubt there will be more price discovery for the new company, which boasts a 2 trillion market cap right outta the gate. The stock market liked this release and showed good resilience in the face of uncertainty.
Breadth
I’m going to grade the breadth performance on Friday a B. It was good breadth but much of the advantage came early in the day and just stayed up, though a late surge of buying helped the VOLD push higher (see below). Oscillators are back in positive territory but it won’t take much to turn this indicator lower, new highs ripped higher again vs new lows, this indicator on an intermediate buy signal.
Volume
If you included SpaceX in the index volume it would have shown up as a monster print, but this new company is not a member just yet (wait a couple more weeks). Good not great turnover on a summer Friday as we move into the weekend. Certainly has the feel of short covering following that big turnaround on Thursday morning, we’ll see how long that lasts. Volume is going to pick up this week with expiration Thursday.
Support Levels
After that explosion upwards on Thursday and Friday followthrough we’ll consider that a good test and followthrough. Finishing with a doji though is questionable, but that near touch of the 50 ma on the SPX 500 may be just enough to launch higher to overbought readings. This is a short week of trading, Friday is closed but volatility will be high with the big options expiration on Thursday and the Fed meeting midweek.
The Internals
What’s it mean?
A mixed picture for internals on Friday, the VOLD clearly the leader as was the VIX for the bulls, the latter finishing at the lows and the former finishing at highs. But the ticks show us a bit of concern, notice the heavy red arrows, so a quite a few sell programs hit all session long. Anomaly? Probably not, but the put/calls raced lower which says big money is not buying much protection again.
The Dynamite
Economic Data:
- Monday:Empire State manufacturing, industrial production, cap utilization, Home builder confidence index
- Tuesday:Import prices, housing starts, building permits
- Wednesday:Retail sales, pending home sales, Biz inventories, FOMC rate policy decision
- Thursday:jobless claims, Philly Fed, leading index
- Friday:Holiday
Earnings this week:
- Monday:CGC, DOMO, PLAY, QMCO, RFS
- Tuesday:VNCE, WLY, LZB
- Wednesday:PGR, JBL, KMX
- Thursday:KR, ACN
- Friday:N/A
Fed Watch:
The week we have all been waiting for! This is the first meeting chaired by Kevin Warsh, a seasoned veteran of the Federal Reserve Board who is providing some new leadership following the end of Jay Powell’s term. I expect to see/hear much of the same from the new Chairman, the committee will have a new set of economic projections, no move is likely in rates in this week’s policy decision.
Stocks to Watch
SpaceX – By all accounts a successful IPO last week, but now the hard part begins. Options start trading on Tuesday, volatility is going to start being priced in as sellers are lurking. It’s going to be an interesting week for this new issue.
Interest Rates – The facts are clear and understood, inflation is starting to rise and may soon cause more price increases to occur. With the Fed meeting this week I suspect they will show some concern, else we could see bonds selling off in a big way.
Iran War – Will there finally be an agreement? It has been bountied around for weeks now but nothing in writing. Thursday seemed as if the two sides were close, markets rallied sharply. This is a short week and maybe an agreement is coming by the July 4th holiday. Wouldn’t that be ironic.
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